2010 (11) TMI 69 - AT - Service Tax

Reimbursement of expenses - gross value of taxable services - deduction - Held that - When logic of service tax incidence calls for taxation of service on the gross value of taxable service and there is no specific deduction allowed under statutory provisions to dimish the value of taxable consideration of taxable service, in absence of such provision in law. The gross value takes into its fold entire cost of service enabling that to be performable. Therefore, by no stretch of imagination neither the arrangements of the parties nor their mutuality or nomenclature or format of their agreement and mode of discharge of consideration shall prevail on the law relating to service tax. Legislature accordingly intend that the gross value of the service shall be the measure of value for taxation whether paid as consideration directly or by reimbursement of expenses relating to providing of taxable service

Summary

Issues:
1. Whether expenses reimbursed by the respondent form part of the gross value of taxable service.

Analysis:
The issue before the Appellate Tribunal was whether the expenses reimbursed by the respondent should be considered as part of the gross value of taxable service. The Revenue contended that such expenses, which are essential for the execution of the taxable service and contribute to the value of the service, should not be excluded from the tax liability. The Revenue argued that expenses indispensable for providing the taxable service cannot be separated from the value of the service. The Revenue relied on previous decisions to support their argument, emphasizing that all expenses incurred until the service reaches its destination should be considered as essential considerations of the cost of service for taxation purposes.

The Tribunal examined the appellate order subject to appeal, where the learned Commissioner had excluded certain expenses from the taxable value of service provided by the respondent. The Commissioner's decision was based on a Single Member Bench decision and disregarded a Division Bench decision, resulting in a reduction of the gross value of taxable service, which the Tribunal deemed contrary to the law. The Tribunal referred to the apex court's ruling on service tax being a destination-based consumption tax, emphasizing that all expenses incurred until the service reaches its destination are integral to the cost of service and should be included in the value for taxation purposes.

The Tribunal further elaborated on the philosophy of service tax law, highlighting that the gross value of service should be the measure of value for taxation, irrespective of the payment modality agreed upon by the parties. The Tribunal emphasized that the legislative intent is for the gross value of service to encompass the entire cost of service to enable it to be performable. Therefore, the Tribunal concluded that the expenses reimbursed by the service recipient to the provider should be considered in the gross value of taxable service, in line with the Division Bench decision cited by the Revenue. Consequently, the Tribunal allowed the appeal of the Revenue, overturning the first Appellate order and reinstating the original order.

In summary, the Tribunal held that expenses reimbursed by the respondent form part of the gross value of taxable service, in accordance with the principle that all expenses contributing to the provision of the service should be included in the value for taxation purposes. The decision was based on the philosophy of service tax law and the legislative intent to tax the gross value of service without deductions for expenses reimbursed by the service recipient.